SAP runs to Commerce One's rescue

SAP on Friday announced it will invest US$225 million in struggling business-to-business vendor Commerce One, possibly greasing the skids for an acquisition at a later date.

Commerce One said on Friday its revenue for the second quarter will fall to between $100 million and $120 million after making $170.3 million in the first quarter. The company enjoyed a record $191.4 million in revenue in the final quarter of 2000.

While the market for online marketplace and procurement software has been dry all year, enterprise resource planning giant SAP has stepped up with a $225 million investment in Commerce One.

The deal will give SAP roughly 20 percent of Commerce One's shares, or 46.7 million shares total. The stock was trading at $5.25 a share on the Nasdaq exchange at 4 p.m. Friday.

In a conference call this afternoon, SAP CEO and co-founder Hasso Plattner called Commerce One's marketplace software a key in SAP's attempts to break free from its back-office supply chain moorings. In particular, he said joint development efforts with Commerce One would help SAP gain a foothold in private procurement exchanges and help with business-to-business integration.

He insisted two down quarters in a slow economy wasn't reason to abandon a company that has proved to be a valuable technological partner. "We make a major investment here because we see a huge business opportunity," Plattner said.

Commerce One CEO Mark Plattner promised a "reorganization" of his company's services division in the coming quarter but didn't specifically announce layoffs. The company employs 3,400 workers.

Plattner also said he believes some marketplace clients that signed on last year will begin to create revenue streams in the near future.

"I believe that several of our mega exchanges ... will turn profitable in a six- to 12-month period," he said.

Analysts believe this won't be the last time SAP and Commerce One have a fiscal rendezvous.

"Long term, the marriage will take place, but probably just for the technology and nothing else," said Hari Srinivasan, an analyst at Banc of America. "It doesn't look like there's a lot of revenues to be had from Commerce One."

Aberdeen Group analyst Kent Allen noted that "SAP has traditionally had a very long courtship with the companies they pick up."

He said Commerce One will need to prove it's worth further investment for SAP to make a full acquisition.

Allen said Commerce One, which just released its latest procurement software and announced the availability of its marketplace software on Sun Solaris 8 systems, has a chance to rebound because many potential customers "are still putting together their e-commerce units."

"This is the tread water period for companies like Commerce One," he added.

The SAP deal is expected to close by August and SAP has agreed that it will not attempt to acquire more than 23 percent of Commerce One in any deal not approved by Commerce One's board of directors. SAP will also gain a seat on that board.

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